Capital Market Inflation in Emerging Markets: the Cases of Brazil and South Korea


  • Bruno Bonizzi SOAS, University of London



Finance, Asset price inflation, Foreign Investors


The paper considers the cases of Brazil and South Korea, two key emerging markets, to assess the relationship between capital flows and equity prices. Building on Jan Toporowski’s theory of capital market inflation, we argue that foreign capital inflows into the equity markets of emerging economies have substantially contributed to creating the excess liquidity that gives rise to capital market inflation there. Particular attention is given to the idea that equity flows can in many cases bring upward pressure on stock prices in emerging markets. Both the fast and unrestricted financial integration of Brazil and South Korea into global financial markets, and the two countries’ considerable financial and economic size, justify the choice of these two case studies. The empirical evidence, especially concerning capital flows and equity prices in relation to the impact of foreign investors, is consistent with the hypothesis of capital market inflation in both countries.


Jel codes: F65, F36, G12, O57



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How to Cite

Bonizzi, B. (2015). Capital Market Inflation in Emerging Markets: the Cases of Brazil and South Korea. PSL Quarterly Review, 68(273).